Flashcards in Growing The Business Deck (58):
What is internal (organic) growth?
A business grows when it sells more output over a period of time.
Why is business growth often an important objective?
Because it may:
Help to increase market share
Lead to lower costs
Result in more profit
When does internal growth occur?
When a business expands by itself, by bringing out new products or by entering new markets
What are some methods of internal growth?
New markets- changing the marketing mix to find new markets or expanding overseas
New products- innovating (developing an existing idea or improving an existing product or service) or researching and developing brand new products that are not currently available.
New technology- large organisations can benefit from investing in the latest technology or in the ability to develop new technology themselves.
What is external (inorganic) growth?
A faster way for a business to grow is for it to join forces with another. There are two approaches to external growth.
What are the two approaches to external growth?
Merger- where two or more businesses voluntarily agree to join up and work as one business
Takeover- where one business buys another. To take over a company it is necessary to gain control by buying enough shares.
What are the methods of external growth?
Mergers and takeovers can take place when firms join at different stages of production.
Backward vertical- business joins with one at a previous stage (e.g. a supplier)
Horizontal- businesses at the same stage join
Forward vertical- business joins with one at a later stage (e.g. a customer)
Conglomerate- businesses with no common business interest join.
What is merger?
Where two or more businesses voluntarily agree to join up and work as one business
What is takeover?
Where one business buys another. To take over a company it is necessary to gain control by buying enough shares.
What is the stock exchange?
A place where shares in PLC’s can be bought and sold.
What are assets?
Any item of value that a business owns, such as its machinery or premises.
What are Public Limited Companies?
An incorporated business that can sell shares to the public. This form of business ownership makes it easier for businesses to raise money for growth.
How can a LTD change into a PLC?
Through a stock market flotation. This is where a business issues shares for sale on the stock exchange.
What are the benefits of being a PLC?
Ability to raise finance through share capital
Considered more prestigious and reliable
May be able to negotiate better prices with suppliers
Greater public awareness of business
May enable a business to grow into a multinational and operate in more than one country
What are the drawbacks of being a PLC?
More complex accounting and reporting procedures
Risk of potential takeovers
Increased public and media attention
Less privacy around financial performance
Greater influence on decision-making by external shareholders.
What are some internal sources of finance for business growth?
Sale of assets- a large business may have assets that it no longer needs, such as fixed assets (e.g. machinery) or excess stock. Selling assets is a quick way of raising capital, but the business loses the benefit of owning the assets that it sells.
Retained profit- this is the safest form of finance because it involves no risk or debt. However, profit is not guaranteed and a business may require a more substantial investment than it can make as profit.
What are some external sources of finance for business growth?
Loan capital- a long-term bank loan can be secured against the business’s assets, but interest will be charged and the business will have to make fixed repayments to repay the debt.
Share capital- a PLC can raise considerable capital by selling shares. However, selling shares puts PLCs at risk of being taken over and all shareholders are also entitled to a share of the profits through dividends.
What is retained profit?
Money that a business keeps, rather than paying out to its shareholders.
What are shareholders?
Investors who are part-owners of a company.
What is share capital?
Money that is raised by a business issuing shares that it then sells to those who wish to invest in the company.
How does competition affect business’s objectives?
as new competitors enter the market or current competitors grow and become more competitive, a business may change its objectives to become more competitive.
How does technology affects business’s objectives?
Objectives may be linked to the adoption of new technology or the innovation and invention of new products made possible by technology.
How does market conditions affect business’s objectives?
The economic climate may change the level of demand and spending in the market. A fall or rise in demand will influence a business’s ambitions and objectives.
How does legislation affect business’s objectives?
Legislation may force a business to change its products and services. This may restrict the business’s operations or create new opportunities that may be incorporated into its objectives.
How does performance, leadership and culture affect business’s objectives?
Annual objectives reflect the previous performance of a business. A change in working culture or the business’s leaders is also likely to influence its objectives so that they match the ambitions or personality of its managing director or chief executive officer (CEO)
What sort of targets will a growing business set?
Expand the product range
Enter new markets
Gain a larger market share
Take over other businesses
Open new stores
Increase the workforce
What sort of targets will a struggling business set?
Decrease the product range
Achieve enough sales to break even
Maintain market share
Reduce costs, e.g. close stores or reduce the workforce
What is retrenchment?
When a business downsizes the scales of its operations, e.g. by decreasing the range of products it sells or closing some of its stores
What is globalisation?
Where businesses operate internationally and gain a lot of influence or power. Globalisation change the way businesses operate and creates considerable opportunities and threats.
What are imports?
The flow of goods and services into one country from another country
What are exports?
The flow of goods and services out of one country to another country
What is the impact of globalisation on imports?
Globalisation allows businesses to import products and raw materials at lower prices than they would be able to produce them for in the UK, either for resale or to produce their own goods. However, importing increases competition from foreign businesses that are able to sell directly to UK customers.
What is the impact of globalisation on exports?
Exporting opens up new international markets for businesses and gives them the potential to grow. However, operating in international markets can be very different to operating in the UK and businesses may face problems if they lack the necessary expertise or knowledge.
What is the impact of globalisation on location?
Globalisation brings with it the opportunity for businesses to relocate operations to other countries. This may be to benefit from lower labour costs, to be closer to raw materials or to be closer to the markets to which they sell their products.
What are multinationals?
A multinational is a large company with facilities and markets around the world. They are powerful businesses that can create lots of jobs and growth when they enter a country. However, smaller local businesses can lose out, especially in less economically developed countries.
What are the benefits of globalisation for businesses?
New market opportunities
Access to technology and resources
What are the drawbacks of globalisation for businesses?
Threat from foreign competition
Challenge of adapting products and services to meet the needs of foreign consumers.
What is free trade?
When there are no barriers to trade between countries.
What is protectionism?
When some governments take actions to restrict the flow of imports into their country.
What are the reasons for trade barriers?
Protecting jobs in domestic industries
Protecting emerging (infant) industries
Preventing the dumping of cheap goods on the domestic market and the entry of undesirable goods.
Raising revenue from tariffs
What are some examples of trade barriers?
Tariffs- taxes on imports
Quotas- physical limits on imports
Subsidies- money given to help domestic producers
Trade blocs- promoting trade between a small group of countries
Non-tariff barriers- imposing quality or safety standards
What is a trade bloc?
A trade bloc is created when the governments of different countries agree to act together to promote trade among themselves. These agreements give member nations of the trade bloc preferential treatment in other countries within the trade bloc, to encourage trade between the countries.
What does e-commerce enable?
Enables businesses to access international markets without the need to distribute or sell their products through foreign retailers. Furthermore, businesses can trade 24 hours a day when selling through e-commerce and can promote themselves through social media sites. However, trade barriers still apply when selling over the internet.
What is e-commerce?
Using the internet to carry out business transactions.
What is glocalisation?
In order to sell to international markets, businesses often have to change their products in order to adapt to other countries’ cultural differences, tastes and legal requirements. This strategy is known as glocalisation.
How do businesses change their product to compete internationally?
Change technological components (e.g. sockets)
Change taste to meet cultural preferences
Change components to meet safety regulations
How do businesses change their price to compete internationally?
Change price to consider tariffs
Comply with different tax laws
Account for currency conversions
Account for incomes in foreign countries
How do businesses change their place to compete internationally?
Change location of products in line with local preferences (e.g. which shops people visit and what time they shop)
How do businesses change their promotion to compete internationally?
Revise advertising campaigns to take into account the fact that the meanings of colours, gestures and phrases are different in different countries
What are ethics?
Ethics are the moral principles that guide behaviours of individuals and businesses. When making decisions, businesses must consider the impact they have on all stakeholders
What is a trade-off?
When something is given up in order to gain or achieve something else. Businesses must balance the drive for profit with their ethical principles.
Paying higher wages and using ethical suppliers is likely to raise costs and lower prices. However, acting ethically can appeal to customers and motivate staff, leading to higher productivity and more sales.
What are pressure groups?
Organisations that try to make businesses change their behaviour or operations. Pressure groups focus on issues such as animal rights, workers’ rights, the environment and world poverty. Pressure groups can cause bad publicity for businesses that act unethically, which can damage the businesses’ reputations.
What are some examples of ethical behaviour by businesses?
Treating workers and suppliers fairly
Being honest with customers
Ethical sourcing of materials
Investing in the community
Meeting government requirements and legislation
Caring for the environment and operating sustainably
What are the impact of pressure groups on the marketing mix?
Product- use sustainable resources, ensure that all products are safe
Price- increase the price paid to small suppliers, pay suppliers fair prices where there is limited competition for suppliers
Place- source local products
Promotion- provide accurate information on packaging
What are the short-term impacts businesses have on the environment?
Traffic congestion through transport and deliveries
Air, noise and water pollution through manufacturing and industry
What are the long-term impacts businesses have on the environment?
Depletion of land, food and natural resources
How are there more business opportunities as consumers are becoming more environmentally aware?
There is an opportunity for businesses to differentiate their products to meet customer needs and make them ‘greener’, e.g. the development of hybrid cars. There are also growing opportunities for businesses in ‘green’ industries, such as energy conservation and solar panel.